- This Blog is for anyone who knows little or nothing about financial matters. -

Monday, January 19, 2015

EXPENSES

From the previous stated equation:INCOME = EXPENSES + DEBT + SAVINGS.

In common usage, an expense or expenditures are an
outflow of money to another person or group to pay for an item or servicer for
a category of costs. It is almost impossible not to have expenses. Expenses are
a part of life. One universal rule that can be used to keep expenses under
control is to buy or obtain needs instead of wants. How often do we go shopping
with a specific item in mind at a specific price and see an item we want at a
higher price with more bells and whistles on it. This happens often with cars. Many
of the modern cars have so many gadgets on them that we never learn what each
device does. Depending what you are setting up an expense account for, the
items used will differ and may be more complex.

An example would be if you are preparing a budget for
a small business. In this blog I will discuss the expenses that you will need
to use and understand to work with your finances.

The finances that you need to know and understand
are three different expenses:

1.
Fixed

2.
Flexible

3.
Other

All 3 expenses are important, but I believe that the
fixed expenses are the most important. Why I say this, is because if you do not
pay them you may lose the item that you need to pay on a regular basis.Let’s look at some examples of fixed
expenses:

1.Rent or mortgage

2.Car payments

3.School loans

4.Utilities - if you have these on level
billing.This means that the total,
which is an estimate of what you will pay for 12 months, is added together and
1/12 is paid each month. Any of your bills that can be placed on level billing
will make handling your finances a little easier.

5.Savings, which is one expense that
people do not think enough about. A great deal of your further success in the
financial world will depend upon your ability to save money.

Flexible expenses are those expenses that vary in
amount from month to month. Some examples of flexible expenses:

1. Food

2. Gasoline

3Charitable donations

4Utilities not on level billing

The third and last type of expenses is other. This
is sort of a catch all that does not fit in the first two: Items such as
clothes, presents, comfort things such as magazines, candy, and most things
that you buy once or twice a year. We will cover this in more detail when we
cover budget and credit report.

Monday, January 5, 2015

INCOME

Remember three sessions ago I introduced you to the
equation:

INCOME = EXPENSES + DEBT + SAVINGS.

The next 3 or 4 sessions I will attempt to explain
how these terms and equation may help you with your money matters. Again, I
will only give you ideas and thoughts.I
stress again and again in this Blog - that I will give you the basics so that
you are able to make decisions on your own.

When money is involved, it is very wise to receive
input from several people you respect before spending large amounts of income
on an item of which you have little or no knowledge.

Always keep in mind that you earned your income and
you want to “get the best bang for the buck”.

On the surface you might ask why we are spending
time on income. We receive income and we spend it. This is true, but I want to
cover some types of income that may need to be handled in different ways than
you would handle money received in a paycheck. There are basically three types
of income:

1.Earned Income

2.Portfolio Income

3.Passive Income

1. Earned income is any income that is generated by
working. This includes money made from hourly employment. This also includes
money earned from hourly work done for another person or from your own
consulting.

Some
common examples of earned income include:

a.Working on a job

b.Owning a small company

c.Consulting

d.Gambling (if you declare yourself a
professional) and keep track of all
your gains and losses.

When it becomes tax
time, each one is treated differently, so it makes your tax reporting somewhat
more complex.

2. Portfolio income is when you sell any item at a
price higher than what you paid for the item. Often this is referred to as a
capital gain or gains.

3. Passive income is income you receive from
something you have purchased or created. An example of this would be if you
purchased a house and rented it out for more money than it cost you for the
mortgage and other items related to upkeep of the property.

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Remember the equation I gave you above.

INCOME
= EXPENSES + DEBT + SAVINGS.

Always be on your
toes to see how you spend or use your money. In the next couple of chapters I
will talk about the 3 areas that your income needs to cover.

1.Expenses

2.Debt

3.Savings

If I were to ask you what is the hardest to start
and maintain, how would you answer?

All 3 are important and probably addressed in the
goals that you are writing. For most people I have worked with, the savings is
the hardest to start and to maintain. Most of the articles that I have read
stress that people retiring have not put away enough to live securely in their
retirement.One article that was
published this week stated that 1 out of 5 retirees will or have died in
poverty. PLEASE do not let it happen to you.